Is This Year The Tipping Point For The Apple Watch?

When the iPhone was introduced a decade ago, it was an instant sensation, but it hasn’t been the same story with the Apple Watch. In fact, sales have been such a small sliver of the pie that Apple has reported Apple Watch sales under the “Other products” line on its earnings reports, but a new survey suggests that this year might finally be the year consumer adoption for the smartwatch picks up.

Image: Screenshot from Keynote

Apple Watch Series 3 demand could be stronger than usual

In a note dated Oct. 23, Bernstein analyst Toni Sacconaghi revealed the results of their recent iPhone owner survey, which covered more than 1,100 respondents in the U.S., the U.K. and China. Among other things, the survey found that purchase intent for the Apple Watch Series 3 was unusually high. In fact, it was almost as high as purchase intent for the iPad even though Apple Watch units have been less than one-third of iPad unit volumes, he added.

According to Bernstein’s survey, 21% of the iPhone owners they surveyed were planning to buy the Apple Watch, while 23% were planning to buy an iPad. The firm found this trend to be consistent across the three geographies it surveyed. Sacconaghi feels that both percentages are a bit “inflated on an absolute basis due to consumer over-eagerness,” but he still finds it interesting that purchase intent for the two devices was about the same.

Trouble for Apple Watch in China

He added, however, that upside for the Apple Watch could have tempered in China since they conducted their survey earlier this month. On Oct. 19, media outlets started reporting that the Chinese government disabled the Apple Watch Series 3’s LTE capabilities because of concerns about state security. He does feel that Apple will be able to work things out with the Chinese government eventually though, especially after the Chinese Communist Party Congress ends on Tuesday.

Despite the concerns, Sacconaghi points out that demand for the Apple Watch is still so uncertain that it could end up surprising to the upside in fiscal 2018, no matter what happens in China. The analyst estimates that if the Apple Watch mix doubled to about 60% of iPad unit volumes next year, the iPhone maker’s total revenues would rise by about 200 basis points.

It’s all about the LTE on the Apple Watch Series 3

The reason the Apple Watch Series 3 is expected to be the tipping point for the device is because it is the first model to have LTE capabilities, meaning that users can make phone calls from it without having an iPhone. This is also why it was such a negative shock that China supposedly shut down the LTE connectivity.

Bernstein’s survey provides a bit more evidence that the Apple Watch Series 3 might finally be the one to see widespread adoption because it comes from consumer polls, but several other analysts have suggested that this could be the year the Apple Watch takes off. GBH Insights technology research chief Daniel Ives said last week that the smartwatch was gaining “significant momentum.” He conducted his own surveys and checked traffic at Apple Stores to get some clues on whether adoption is improving this year.

According to him, about 70% of those who are buying the Apple Watch Series 3 did not own either the first- or second-generation device. However, the way his data point is worded is rather unhelpful in my opinion because a smartwatch isn’t like a phone in that people will buy a new one year after year. Perhaps, people will buy new Apple Watches every few years when they become a full replacement for their iPhone, but until then, it seems strange to suggest that a smartwatch would be replaced every year.

Thus, it would be strange to me if those who already owned an Apple Watch were mostly those who were buying the Series 3. Further, there have been so many problems with the LTE on the Series 3 even working at all that it’s hard to imagine anyone buying a future Apple Watch if they bought a Series 3. Then again, if it has an Apple logo on it…